One-third of companies’ profit in Nigeria eroded by taxation – Report

Nigeria has been ranked 134 out of 138 economies on the ease of paying taxes, dropping from 134 recorded in 2011 in the PriceWaterhouseCoopers’, PWC, ‘Paying Taxes 2012 Study.’

“Put differently, this means that in Nigeria, a medium size company on average pays nearly one third of its commercial profit in taxes, spends over 23 weeks in a year dealing with tax affairs and makes a tax payment every 10 days,” according to the report.

Mr. Taiwo Oyedele, Partner/Tax & Corporate Advisory Services Leader, PWC, who presented the report to newsmen in Lagos,said with the latest ranking, Nigeria is far behind many of leading investment destinations in Africa including Mauritius, which ranked 9, South Africa36 and Ghana 87.

He maintained that Nigeria’s consistent decline in the ease of Paying Taxes index is as a result of the country’s uncoordinated approach to tax reforms, while a number of countries have undertaken a significant improvement in their tax systems.

Oyedele added that across the globe, governments focus are mainly on tax reforms, adding that in 2010/2011, the period covered by the 2012 study, 33 economies made it easier to pay taxes or reduced tax rates.

“Common among the tax reforms witnessed across the globe is the introduction of electronic systems to make compliance easier,” he said.

He continued: “The paying taxes results enable governments to benchmark their tax with others on a like-for-like basis and to identify best practices.”

He quoted the report:d, “The study measured three separate aspects of paying taxes. Two of these relate to the tax compliance burden and one to then tax cost. All three are equally weighted to arrive at an overall ranking.

“The three indicators are: Number of tax payments; total tax rate as a percentage of commercial profit and time required to comply with tax requirements. On these sub-indicators for 2012, a medium size compani in Nigeria makes 35 tax payments annually, pays 32.7 per cent of its commercial profit in taxes and spends 938 hours to comply.

“As a result, Nigeria ranks 123 on number of tax payments, 56 on total tax rate and 180 on time required to comply out of 183 economies covered by the survey.”

Oyedele blamed Nigeria’s decline on the overall tax payment ranking on the amount of time required to comply with tax obligations in the country.

This, he said, covers the time required to comply with major taxes including collection of information, computation of tax payable, completing tax return forms, filing with relevant tax authorities, arranging payment or withholding and preparing tax accounting records and documentation.

Continuing further, Oyedele stated, “To a very large extent, the study shows that there is correlation between the ease of paying taxes and economic development, as paying taxes is easiest for business in high-income economies.